MILAN - Italian operator Telecom Italia unveiled Thursday strong three-year forecasts, taking the market by surprise, as shareholders approved the merger of its majority-owned subsidiary Telecom Italia Mobile (TIM).
Telecom Italia said it expected operating profits to increase between 7.0 and 9.0 percent annually on a constant basis and excluding non-recurring charges over the three-year period from 2005 to 2007.
Over the same period, Telecom Italia said it saw sales rising between 4.0 and 6.0 percent annually on a like-for-like basis, and operating profit before amortizations increasing 6.0-8.0 percent.
The forecast was based on IAS/IFRS accounting standards.
The company added that it expected to generate 1.5 billion euros (1.94 billion dollars) in synergies over the 2005-2007 period from its merger with its majority-owned mobile unit TIM, which was approved Thursday by Telecom Italia shareholders.
The integration of fixed and mobile telephony platforms will allow the group to take advantage "of rapidly evolving technological change and respond more effectively to customer demand," the parent group said.
Telecom Italia expected demand in Italy to be driven mainly by the distribution of innovative services linked to increased availability of broadband, UMTS mobile phone technology and digital terrestrial television.
The group planned to strengthen its "already solid" international presence and continue a selective expansion in the European broadband market.
Operational investments will total about 14 billion euros in 2005-2007, it said.
At end-2007, net debt is forecast to be in line with the about 33 billion euros in debt -- applying IAS/IFRS standards -- that stood at end-2004.
The increase in debt generated by the takeover of TIM will be absorbed over the three-year period thanks to cash generation, it said.
Telecom Italia shares were sharply higher in early afternoon trade in Milan, boosted by higher-than-expected forecasts for 2005-2007, dealers said.
Telecom Italia was up 1.59 percent at 2.9725 euros, but off a high of 2.99, and Telecom Italia Mobile rose 2.04 percent to 5.24. The SP/Mib index was 0.64 percent higher at 32,715 points.
"The company unexpectedly released the forecasts which are higher than the market consensus," a dealer said.
Telecom Italia was expected to unveil its forecasts at a meeting with analysts on April 12.
The dealer added that the market was also reacting well to higher-than-expected synergies forecast from the planned merger with TIM.
"The stock is certainly rising on the forecasts," another dealer said.
Analysts were expecting synergies of about 1.0 billion euros.
ABN Amro expected Telecom Italia to target 3.0 percent annual sales growth over the plan period and 4.5 percent annual operating growth.
ABN Amro also forecast end-2007 net debt at 35 billion euros.
04/07/2005 14:50 GMT